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ecommerce

Amazon Sales Crush, But Profits Disappoint

Amazon says sales are up a booming 20% -- well
ahead of predictions —--even as it fends off growing competition from Walmart and Target. But all that fast, free shipping comes at a cost, taking an unexpectedly large bite out of its bottom
line.

For its second quarter, the Seattle-based company’s sales shot up 20% to $63.4 billion, compared with $52.9 billion in the second quarter last year. And while net income climbed to
$2.6 billion in the second quarter, compared to $2.5 billion in the comparable period, that figure is still below Wall Street forecasts.

Amazon also snapped a four-quarter streak of posting
record profits.

Although the results don’t include its just-concluded Prime Day event, Amazon used the earnings announcement to crow about it, reiterating that sales over the 48-hour
shebang made it not only the largest shopping event in its history, but also surpassed the previous Black Friday and Cyber Monday combined.

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For its third-quarter results, the company says it
expects sales to reach between $66 billion and $70 billion, a rise of between 17% and 24%. And it anticipates operating income in the range of $2.1 billion and $3.1 billion, compared with $3.7 billion
in the comparable period.

The gains prove that Amazon’s focus on one-day shipping is making a big impact on customers.

“Our data show that this has been popular, and Amazon
has picked up some new Prime members as a result and has captured greater share of those shoppers seeking convenience or needing a product urgently,” writes Neil Saunders, managing dsirector of
GlobalData Retail, in his note on the earnings report. “Amazon has effectively succeeded in boosting its long-term share of the market.”

But shipping costs zoomed 36%, he notes,
and now account for 12.8% of total sales, leading to a decline in the company’s profits in North American.

Still, Amazon doesn’t have much choice, Saunders argues.
“Traditional retailers like Walmart and Target are ramping up their ecommerce efforts and have the advantage of being able to offer collection from stores for shoppers wanting to obtain products
quickly. By and large, Amazon has no such benefit, so it had to neutralize it by offering faster shipping for free.”

Amazon’s report also highlights just how unstoppable a force it
is in selling its own products, including Fire, Echo and Kindle, and how Alexa and connected devices continue to find their way into more homes and cars. There are now more than 60,000 smart home
products that are Alexa-compatible, from over 7,400 unique brands.

The report offered plenty of news about fashion, an area many observers see as one of Amazon’s weaknesses. Initiatives
include the Drop, which gives customers exclusive access to limited-edition collections via the Amazon App, as well as StyleSnap, which lets people shop by simply taking a photograph or screenshot of
an item.

New exclusives include Moon and Back, in partnership with Hanna Andersson; a Levi’s collaboration with pro football player Sterling Shepard and supermodel Chanel Iman Shepard;
and the Hanes Ultimate Baby collection.